‘Barometer of success is that you win more than you lose’

Perfetti Van Melle India entered India in 1994 with Centre Fresh. What have been the mistakes and learnings for the brand since then?

 

We entered India at a time when market was largely unorganised. We came in with a differentiated offering, which the market had not seen before. Though this market is a low-entry barrier business, it still took a while for the market to catch up. We got the pricing right to begin with. Distributor and retail margins were quite high before we entered. We got that right because we were offering a unique product, and we could price it well. Since then, we have learnt as we went along in this market.

 

We also had the added onus of creating the market and becoming a market leader. When we entered the market, it was small. In 1994, sugar confectionery market was estimated to stand at Rs 400 to 500 crore in India. Now, it is more than 10 times the size, and we have also grown the business exponentially. We have grown 20 times in the course of the last 15 years.

 

We did the right things by going for the share of wallet of the retailer first. We put in place a new distribution system. In terms of advertising, we recognised the importance of not showing kids in our ads. We did not have to show slapstick humour.

 

We succeeded at many levels, which is why we are at close to 30 per cent share in the market. Our nearest competitor is a third our size. You cannot have that kind of success if you make mistakes. I would be a fool to say that we did everything right. But the barometer of success in any industry, including ours, is that you win more than you lose.

 

What is the size of PVMI now in this market?

 

We are Rs 2,000 crore in a market that Nielsen estimates to be Rs 6,000 crore.

 

How has the product portfolio evolved since then? Has consumer insight played a role in it?

 

We started off with Alpenliebe and Center Fresh. Now, we have 13 brands. A lot of PVMI’s brands have come from the parent company in some form, and have been adapted to Indian palate. Since it is a hot country, to make the product stable, certain changes were made to the recipe. And then, there are brands that are purely indigenous to India – like Juzt Jelly, which is a recently launched brand and has been a huge success. It is possibly one of the biggest launches in all of the food category in the past couple of years. Then there is Alpenliebe Spicy 1, which is spice-filled and came from consumer insight. However, brands like Center Fresh and Center Fruit aren’t as big worldwide as they are in India. Alpenliebe has also flourished in India and China. Brands like Mentos are far bigger worldwide and slowly gaining prominence in India.

 

Under the current brand portfolio, which brand contributes maximum to revenues?

 

Center fresh and Center Fruit put together contribute to 40 to 50 per cent of the top line.

 

What is the contribution of revenue from urban and rural India?

 

For our large, established brands, significant part of our revenues - over 50 per cent - come from rural India. I see small towns growing at marginally higher rates than bigger towns.

 

The Indian market has really opened up and many national and international brands available in the country in sugar confectionery space. What is your strategy to combat competition?

 

The two big brands - Wrigley’s and Cadbury - are already here in India. It is not as if any other competitor has not yet come into India, in the sugar confectionery space. Like any market leader, I try and protect all my flanks. We are market leaders in several categories that we operate in, with the exception of Eclairs. If someone launches a new product, either I proactively have a product in the market or I see what we can do. The typical market strategy is to be huge compared to the next guy.

 

How do you increase the consumer base and increase brand loyalty in this impulse-driven category?

 

It is a highly impulsive category. It is a category where consumers do not have loyalties. They are unlikely to go to multiple shops and look for your product. Hence, it is distribution-led. Mostly the purchase decision is done at that moment right in the shop because of visibility, and top-of-mind recall. We recognised this fact early on, and that is why you see very clutter-breaking advertising from PVMI. Lot of people ask me, ‘How do you manage to do such creatives?’ The honest answer to that is we are in a 50 paise category, and we can’t afford to be serious about it.

 

Sugar confectionery in India is mostly consumed by kids. We see the relevance of digital growing. With that, we can target older teens and young adults much better. When you start talking to people who can afford you, you can start launching in stick bags, plastic bottles, flip tops. Therein lies the big opportunity to ‘up-age’ the whole segment.

 

Our per capita consumption of gums and chocolates are much lower than that in European nations. The other areas that will emerge slowly will be value-added or functional gums. New segments will emerge. There are segments that are doing well abroad, but for a variety of reasons are not present in India. In terms of value, the confectionery market is Rs 6,000 crores - just about a billion dollars right now in India. It is likely to substantially increase over time, especially with high value packs.

 

Is PVMI planning to launch new products in these segments?

 

Yes, we are. Nothing has changed from 1994 to 2014 now, in terms of what we do in this country. We still remain far ahead of the competition. There are players in this market who are struggling to survive in this market because their turnovers are so low. It is a tough business to survive, in terms of margins. So who will innovate? Clearly, the market leader has the onus of innovation. We will definitely be looking at newer segments, new areas of growth. Especially, with GDP slowing down, our sector also gets impacted. We are always on a lookout to see if there are niches available. For example, cross promotion is talk of the town, so we did a tie up with Spiderman recently. It did very well for us and gave us a tranche of growth, which otherwise would not have been possible. Marketers will need to be opportunistic. One need not have big plans; even small plans can give a fillip.

 

Are you eyeing premium category as well?

 

Premiumisation is the buzz word these days. Yes, we are eyeing it.

 

In the sugar confectionery space, premiumisation can mean a value-added product such as gum for sensitive teeth or a candy that delivers Vitamin C. All this is possible to do. It would mean that cost of transaction would go up for us. But at the same time, we have to be conscious that we are predominantly a mono (single product unit) market. We sell at one rupee or 50 paisa price point. It’s not that consumer is going to accept high value products straightaway. They have to believe in the benefit, and it will take time. The only functional product in this category that does well is Vicks, and we all know what kind of brand heritage they have. It has taken them years of advertising, and the rub off of Vicks Vaporub helps the product do so well.

 

With increasing pressure on margins, are you mulling price rise?

 

Margin pressure is there across categories, and industries. It affects us more because we have a coinage issue. We cannot price our products at 70 or 80 paisa. We will have to take a 100 per cent price hike, if we want to do anything about it. Because kids are our main consumers, 50 paisa and Rs 1 mean a lot. If you suddenly increase your prices in cluttered environment with extreme competition, it is a challenge. Our effort and time are dedicated to discuss how we can become more profitable. In the larger scheme of things, multi-packs, going up the value chain are the probable solutions.

 

India has over 80 lakh retail outlets. Out of it, 55 lakh store confectionery. It is unlikely that this scenario will change anytime soon. There is proliferation happening in modern trade. Distribution is and will remain a key area. Pricing is something where we need to break the mould. And hope to do so soon. It is detrimental to all players, and onus is on all of us to break the mould. Unlike abroad, where confectionery is sold in bags and multi-packs and stickpacks, India is still a mono market. This is not likely to change soon, but steps are being taken in the right direction.

 

Of course, price rise is inevitable and they will happen over time depending on how you are growing in that particular year, what learnings you can take from multiple players, and what more can you do to add value when you increase the price.

 

PVMI’s campaigns have always been rooted in humour. How has this approach helped the brand?

 

We were trendsetters in this space. With the increasing amount of clutter, one realised that humour was the best possible way to be noticed. Broadly, there are three areas where you can take your ad. One is purely functional, the other being tugging at the heartstrings. Both of these will not be believable. This category is best suited for humour. Ultimately, we sell a 50 paisa product. If we can’t use self-deprecating humour about ourselves, and the category that we operate in, then who will? Now, even cars have started using humour as the base - it used to be purely functional earlier. I think people realise that very serious advertising may not break clutter.

 

The other reason why we use humour is that it is a case of tail wagging the dog. There are multiple brands to support, and not enough money behind every brand. The consumers need to remember my advertisements.

 

We have our standard monthly measures that track how the ads are doing. Pretty much, all marketers use the same methods and techniques.

 

What are the marketing spends across mediums? Are spends on digital growing?

 

When sales go up, marketing spends also go up. Our ad-to-sale ratio remains pretty much the same as FMCGs. At an overall aggregate level, we are among top 20 TV advertisers in the country. We don’t do any print. However, this is at the aggregate level. When you talk about PVMI, it is not Perfetti that is being advertised - it is Center fresh, Center Fruit, Alpenliebe etc. Every brand needs the support.

 

As far as I am concerned, for my brand’s advertising, TV is going to be relevant for next 15 years to reach my consumers. But digital should be given its due because it is reaching new touch points, and getting the consumer to interact with your product. Kids will remain a key part of our repertoire, they will be the most important to talk to. But we will start designing products or developing confectionery segment for the older age group.

 

Going forward, what do you think will be the growth triggers for Perfetti Van Melle India?

 

We are market leader in gums category by huge margins and are looking at innovating in that space. We ventured into the jelly segment and we will be consolidating our position there. There are certain segments like lollipops in India, which has not yet realised its potential. We would like to do much better in that space. Other than this, for us, profitability, driving consumers up the value chain is clearly important.

 

This appeared in the issue of Campaign India dated 11 July 2014.